Calculating and Recalculating the Impact of Reopening

BY SONYA LOERA

The impact that the coronavirus pandemic has had on apartment owners throughout Orange County has been — and continues to be — what might best be termed a rollercoaster ride.

With the initial shutdown, everyone was concerned about delinquencies and non-payment of rent. Residents, themselves, were uncertain as to what the stay-at-home order meant, especially in terms of their jobs and futures. Already faced with a statewide freeze on court evictions, owners resorted to concessions and payment plans as a means for creating a path forward.

As companies adapted and moved into to a virtual work environment and those deemed essential workers were in higher demand than ever, the local rental industry seemed to hold fairly steady. The stimulus checks, added unemployment benefits and payroll relief grants further alleviated immediate concerns, especially as reports of delinquencies remained reasonable.

Yet all too soon there appeared to be cracks in the fragile equilibrium. The cracks had always been there, but the consequences of the pandemic and the shutdown brought into sharp focus that not every community was going to be impacted equally.

At the beginning of this year, Tim Gorman wrote a series of articles about “How to Survive and Thrive with the New Norm” (Apartment News Magazine — January through April 2020). Over this four-month period, he addressed basic, action-item steps that owners needed to take in order to fully understand how their properties were positioned in terms of financial performance, security and growth.

Back in January 2020, the “new norm” that apartment owners were then facing was the enactment of new statewide rent control law AB 1482. Nine months later, the situation is even more complicated with even greater constraints and potential restrictions.

Perhaps one of the least considered, yet now most critical action items that Tim proposed was that of “reviewing your current tenant base.” As the reopening progresses, it is becoming more and more apparent that certain sectors of our economy are being hit much harder than others. This is particularly true of the entertainment, hospitality and travel industries.

Even as this article is being submitted for publication on the last day of September, news is breaking about Disneyland’s announcement of a massive layoff of 28,000 employees in its Parks, Experiences and Products division. And, in many regards, that is only the tip of the iceberg. All of the surrounding hotels, motels, restaurants and shops supported by the tourists visiting this iconic entertainment attraction are being decimated.

So, while owners of apartments in other areas of Orange County whose residents are employed in less impacted sectors are seeing a return to relative normalcy, there remains a significant number of owners who still face huge uncertainties. Even if Disneyland is allowed to reopen even partially, will that be enough to change the trajectory? What options are there?

First and foremost, owners of properties heavily populated by residents employed in the entertainment and hospitality industry sectors need to take a serious look at how they are positioned.

Yes, everyone at WR Gorman keeps saying the same thing. However, without knowing in very concrete terms, the income and expense facts behind the cash flow generated by each and every property owned, as well as projections for what may happen, it is virtually impossible to make good decisions.

Simply ignoring the realities or declaring all is lost is not the answer. It is only through an understanding of how you are positioned — not just with each property but in terms of your entire real estate and financial portfolio, as well as your own personal situation — can you gain the perspective needed to chart a course forward.

By taking this approach and going through the action steps outlined in Tim’s Survive and Thrive series of articles, investors are able to better look at all of the options and then make smart and informed decisions. There is no right or wrong answer. Everyone’s situation is different and what works for one owner may not be the best solution for another.